The Danish Tax Authority is now able to pursue VAT fraud within the international e-commerce industry

The Danish National Tax Board has given the ok for checking online stores’ payment of VAT. The development comes after years of foreign online stores not paying Danish VAT when Danish customers purchase products on their website, thus having an unfair advantage compared to their Danish competitors within e-commerce.

The Danish Tax Authority (DTA) has been given a license to obtain information from a supplier of payment services, which enables the DTA to ensure that foreign suppliers operating with e-commerce are submitting correct VAT specifications concerning payments received for the sale of products and services to Danish customers.

According to Danish rules, all online stores who are selling goods to Denmark must pay Danish VAT if their annual sales to Danish consumers exceed DKK 280,000. However, if the sale originates from electronically supplied services, such as online games and streaming services, the supplier must always pay Danish VAT regardless of the sales amount. The exemption applies irrespective of whether the supplier is established within or outside the EU.

Together with Croatia and Sweden, Denmark has a VAT rate of 25 %, which is only surpassed by Hungary’s VAT rate of 27 %. Thus, Denmark has one of the highest VAT rates within the EU and by comparison, Germany has a VAT rate of only 19 %. Therefore, customers who purchase goods online, where the original price only is added with e.g. 19 % in VAT, are paying less for a product than if purchasing the same product through a Danish website.

In general, Danish consumers’ online shopping has increased heavily. According to Statistics Denmark and the Danish Chamber of Commerce, 42 % are purchasing products in another EU member state and 21 % are purchasing products in countries outside the EU. The large difference in VAT rates has thus caused and will cause an even greater disadvantage for Danish online stores (as their products and services automatically are more expensive with the added 25 % in VAT). With the prospect of a further increase in e-commerce, the risk of Denmark missing out on VAT payments is high. This has prompted the Tax Authority to take action in order for the Danish stores to become more price-competitive and to avoid missing out on future VAT payments, which at the time is expected to be several hundred million DKK.

Henceforth, the DTA has the authorization to obtain information relating to credit card payments carried out on foreign online stores from Danish consumers with the exception of information about the consumer itself. This enables the DTA to identify and select online stores relevant for inspection, as they will now have information about which online stores are selling products and services to Danish consumers.

Ultimately, the DTA’s license to obtain such information will help ensure that Danish online stores are not exposed to unfair competition, and that the correct amount of VAT payments will be received by the Danish state. Thus, all the suppliers selling products and services through e-commerce are well-advised to make sure that their VAT payments are made according to Danish rules, when selling to Danish consumers.

Martin is recognised for his solid legal skills and as an innovative thought leader and strategist within the IT industry. He is a partner in Bird & Bird's International Tech and Comms Group and is based in Denmark. Martin is one of Denmark’s leading IT lawyers with almost 20 years’ experience of advising Danish and international organisations, including large blue chip companies on legal and commercial matters in connection with IT in a wide sense. He is considered a pioneer with respect to legal aspects of Online Technology Solutions (Ecommerce, internet and web services), Cyber and IT security, open source and open data and use of other open licence forms such as Creative Commons.